The rising price tag of healthcare and the risks and costs associated
with funding pension plans weigh heavily on corporate finances,
according to “Balancing
Costs, Risks, and Rewards: The Retirement and Employee Benefits
Landscape in 2013,” new research released today by Prudential
Financial, Inc., in collaboration with CFO Research Services.
As corporate America struggles to manage costs and risks while
maintaining the competitive retirement and benefit packages needed to
recruit and retain workers, finance executives are exploring and
adopting new ways to address these challenges, the survey found.
“The current economic environment, changing world of pensions, and ever
increasing cost of healthcare all continue to present challenges to
companies providing employer-paid benefits,” said James Gemus, senior
vice president for group life and voluntary benefits, Prudential Group
Insurance. “Employers are finding solutions like developing new
investment strategies and offering voluntary benefits employees choose
and pay for themselves.”
The survey targeted senior financial executives at companies with
defined benefit retirement plans holding $250 million or more in assets.
These are plans that pay out a specified benefit to retirees. The survey,
conducted by CFO Research in February, complements studies done in 2009,
2010 and 2012. More than 80 percent of the 181 companies included in the
survey had revenues of more than $1 billion.
If healthcare is the top concern for employers, funding pensions is not
far behind. The survey found nearly sixty percent of the companies have
either frozen accruals for all participants or closed their defined
benefit plans to new entrants and many more are likely to do so within
two years. Many are looking at transferring pension risk and enhancing
defined contribution plans – like 401(k) s – to improve operating
flexibility and help employees better fund their retirements.
“These financial executives are worried about management attention being
diverted from running the business to dealing with pension liabilities,”
said Margaret McDonald, senior vice president and actuary for pension
risk transfer, Prudential Retirement. “An increasing number are looking
at transferring the entire pension risk.”
While only 6 percent of those surveyed say their companies have already
transferred their defined benefit plan risk to a third-party insurer,
approximately 40 percent say they will consider doing so within the next
two years.
McDonald said as defined benefit plans become less commonplace, defined
contribution plans need to be enhanced to ensure employees have enough
money to sustain a comfortable retirement. “Most executives think a
significant portion of their employees will have to work longer because
they don’t have enough money to retire. Adding guaranteed income options
to defined contribution plans can go a long way to ease employees’ fear
about the volatile investment environment,” she added.
The survey
found that more than 60 percent of executives believe employees enrolled
in defined contribution plans will make better investment decisions if
they are invested in an option that includes a guaranteed income
feature. Many of the executives say their companies are at least
somewhat likely to offer guaranteed lifetime income products over the
next two years.
Other survey findings included:
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Nearly three-quarters agree the use of voluntary benefits is a
cost-effective way to increase employee satisfaction with benefits.
This finding represents a substantial increase over 2012, when 56
percent of the respondents agreed. Voluntary benefits include
offerings such as life, disability, critical illness, and accident
insurance.
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More than a quarter say their companies have already shifted a large
portion of the costs for healthcare coverage to employees, and another
34 percent say their companies are very likely to do so within the
next two years.
“Clearly, the research highlights the ongoing challenges CFOs face
balancing their companies’ fiscal responsibilities and serving the needs
of employees who expect competitive workplace benefits,” said James
Gemus. “CFOs are looking to benefits providers for solutions that are
cost effective, offer employees choice and options for guaranteed
retirement income.”
Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has
operations in the United States, Asia, Europe, and Latin America.
Prudential’s diverse and talented employees are committed to helping
individual and institutional customers grow and protect their wealth
through a variety of products and services, including life insurance,
annuities, retirement-related services, mutual funds and investment
management. In the U.S., Prudential’s iconic Rock symbol has stood for
strength, stability, expertise and innovation for more than a century.
For more information, please visit http://www.news.prudential.com/.
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Copyright Business Wire 2013